Requirements for purchasing a small business in Victoria

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Table of Contents

• What form must the Section 52 Statement take?
• What must the Section 52 Statement include?
• Consequences of providing an incomplete or incorrect statement
• Conclusion

Purchasing a small business in Victoria can be equal parts exciting and nerve-wracking. If you have never had experience purchasing a business before, it can be a steep learning curve, as there are myriad factors to consider. So you don’t get caught out, it’s worth seeking professional help.

Understanding what you are entering into when you purchase a small business in Victoria is made easier with the requirement that the vendor of the business provide the purchaser with the “Statement by a vendor of a small business”, or for short the “Section 52 Statement”.

The statement is required to be provided by the vendor under the Estate Agents Act 1980 (Vic) and sets out important matters, such as gross profit, operating revenue and the quality of business assets for the last two accounting periods (or financial years).

For the purposes of the act, a small business is defined as a business in which the goodwill, plant, equipment and fittings being sold have a total price of $450,000 or less.

What form must the Section 52 Statement take?

The Statement must be in the form of Form 2 in Schedule 2 of the Estate Agents (General, Accounts and Audit) Regulations 2008 (Vic).

What must the Section 52 Statement include?

The Statement must have six sections:

•   Section A – Important information for the vendor
•   Section B – Important information for the purchaser
•   Section C – Business Information
•   Section D – Vendor’s business operating report
•   Section E – Vendor’s declaration
•   Section F – Acknowledgement of receipt by purchaser

Each of these sections sets out important information for the purchaser of the business, which helps her or him fully understand the nature of the business.

For example, Section C ‘business information’ must include a description of the business, how long the business has been running for, how long the business has been running at its current location, whether the premises are owned or leased and the business’ trading hours.

Section D ‘vendor’s business operating report’ gives an overview of the trading of the business and must include:

•   Total gross income;
•   Gross profit;
•   Total operating expenses;
•   Net profit; and
•   Further considerations such as asset quality

The statement must be certified by an accountant as being a true and fair representation of the business.

Consequences of providing an incomplete or incorrect statement

If a statement is given which is not in the prescribed form and does not contain the prescribed particulars (such as ‘operating particulars’) or if it states those particulars inaccurately or if no statement is given, this has ramifications for the purchase.

The purchaser may, by notice in writing to the vendor:

•   within three months after she or he first signs any contract in respect of the sale; and
•   before she or he takes possession of the business, ‘avoid’ (or rescind) the agreement.

On the purchaser ‘avoiding’ the contract, the vendor is liable for the repayment of any money paid by the purchaser under the contract (section 52(4) of the Estate Agents Act 1980 (Vic)).

Conclusion

Whenever you are considering purchasing a business, it’s important to conduct due diligence investigations so that you are fully aware of what you are getting into.

In Victoria, conducting due diligence is made easier by the requirement that a vendor of a small business provide the purchaser with a “Section 52 Statement”, containing significant disclosure as to the nature of the business.

For more information regarding the legal requirements for purchasing a small business in Victoria or any other state, contact LegalVision on 1300 544 755.